Gold Crashes Below $4,200 as Oil Shock Backfires on Fed Hawkishness
Gold prices plummeted on Monday, falling below $4,200 an ounce as investors treated rising oil prices and higher US bond yields as a reason for the Federal Reserve to maintain its hawkish stance.
The sharp decline put bullion on course for its steepest daily drop since September 1. This unexpected move is particularly puzzling given that gold would normally benefit from an oil-driven inflation scare, but investors are instead interpreting higher energy costs as a reason for the Fed to remain aggressive in its monetary policy tightening.
US President Donald Trump's rejection of an Iranian proposal to reopen the Strait of Hormuz and end the conflict contributed to Brent crude climbing back above $106 a barrel. The resulting supply concerns elevated oil prices, further supporting expectations that the Fed will keep raising interest rates.
The current selloff has not yet erased the longer-term demand story, with global gold-backed ETFs attracting a record-breaking $18 billion in August, according to World Gold Council data. Holdings rose by 121 tonnes to reach a new high of 4,189 tonnes, while assets under management reached $615 billion.